Orange County executives are entering the second quarter with slightly more optimistic business expectations, according to the latest quarterly survey released by California State University-Fullerton’s Mihaylo College of Business and Economics.
The school conducts a survey at the end of every quarter to measure the business sentiment of local executives and business owners for the upcoming three months. The survey asks them about overall economic strength, business growth, plans for hiring staff, changes in sales and profit growth, differences in inventory, and other issues.
The second-quarter index registered at 85.3, an uptick from the 82.6 expressed in the first quarter and the 83.8 in the fourth quarter of last year. The current reading is the highest sentiment expressed since the July 2015 survey, when respondents had an 81.7 score. Executives were very optimistic a year ago, with a survey reading of 92 for the second quarter of last year.
A score greater than 50 generally indicates growth expectations for local businesses.
The current survey was based on responses from 54 executives. About 49% of those employ more than 100; 32% have 20 to 100 employees; and the remaining 19% employ 20 or less.
A majority of those surveyed, about 91%, said they expect “overall business activity to improve or stay the same” in the next three months. About 89% shared the same sentiment a quarter earlier.
“Things are starting to settle down for business leaders, and they have a better understanding of their situation,” said Anil Puri, dean of the Mihaylo School and head of the quarterly survey project. “The stock market is rebounding from lower equity prices, the Federal Reserve’s interest rate policy is becoming clearer, and the overseas economies are not as turbulent.”
Business owners were less optimistic when they evaluated their own industries. About 59% said they expect “significant or some” growth in their sector; some 54% of respondents were that optimistic for the previous quarter. About 7%, versus 11% for last quarter, said their sectors are likely to weaken. The remaining 33%, down from 35%, said they expect business to remain stable.
Few executives expected to add to head count, according to the CSUF survey. About 30% of respondents, down from 33% last quarter, said they intend to increase to their staff during the next three months. About 63%, compared to 59% in the previous quarter, said they expect their labor forces to remain the same. Seven percent of respondents said they plan to shed jobs, unchanged from the previous survey.
Temp Uptick
Employers may be hiring more temporary employees in anticipation of a stronger economy.
There has been a 40% increase in demand for temporary services in the last few months, according to Scott Leighton, controller for the Irvine office of Helpmates Companies Staffing Services. “We’ve seen a lot of orders for office, finance and manufacturing services,” he said. “It’s difficult to find people with those skills, especially in a county where unemployment is about 4%.”
About 56% of respondents—down from 67% last quarter—said they expect increased sales in the second quarter. Thirty-seven percent expected little change in revenue, up from 26% for the previous quarter. About 7% of those surveyed, the same as the last quarter, said they anticipate lower sales.
About 63% of participants, up from 59% last quarter, said they expect higher profits. Respondents expecting no change in profits increased by six percentage points to 36% from the previous quarter. And the respondents who expected lower profits remained the same at about 11%.
Puri said there seemed to be a “disconnect” between respondents’ expectations of second quarter revenues and their operating profits. “So business leaders felt some soft optimism about their respective industries.”
The study also asked participants to rank their major concerns from a number of categories. The state of the overall economy received the most votes, accounting for 37% of responses, a drop from 41% three months ago. Government regulation was second at 30%, up from 24% from last quarter. Labor costs were a slightly lower concern at 11% compared to 13% last quarter.
The study also asked respondents to rank the biggest threats to the U.S. economy from among five issues.
Congressional inaction remained the top concern with 40%, a precipitous drop from the 52% in the last survey.
The Federal Reserve Bank’s possible interest rate increases remained at No. 2 with 28%, up from 23% last quarter.
China’s economic performance and the federal government’s debt payments tied for No. 3 with 15% of those polled. Low oil prices ranked last with 2%.
The survey also addresses housing as an element of Orange County’s economy, and 66% of respondents said they expect median housing prices to rise by up to 5% by the end of this year. About 14% expect up to a 10% increase, and some 19% said housing prices may fall by 5% by the end of the year.
